Salary Deduction Limit for a Loan Co-Maker under Philippine Labor Law

(A practical guide for HR managers, employees, lenders, and counsel)

1. What a “co-maker” is—and why it matters

A co-maker (sometimes called a loan “guarantor”) signs the same promissory note as the principal borrower and undertakes solidary liability. Under Article 1216 of the Civil Code, the lender may collect the entire unpaid balance from the co-maker once the borrower defaults. When the co-maker is also the borrower’s co-worker, the easiest “collection” method is a salary deduction processed by their common employer. This is where the Labor Code rules come in.

2. Statutory basis for salary deductions

Source	Key rule	Practical effect
Labor Code, Art. 113 (old) / Art. 116* (renumbered 2016)	“No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except … (a) when required by law; (b) when the employee gives written authorization, provided the employer derives no direct or indirect profit, and the deduction does not reduce wages below the applicable minimum wage.”	Written consent is indispensable; the deduction must never cut take-home pay beneath the statutory minimum.
Book III, Rule VIII, §10-12, IRR of the Labor Code	Mirrors Art. 113/116 and clarifies that the authorization must be specific as to amount or percentage and may be revoked in writing at any time.	A blanket “any future debt I may incur” clause is void; the worker may cancel consent prospectively.
Civil Code Art. 1706	An employer may withhold wages only for a debt due to him, or to a third person if the employee so authorizes in writing.	Confirms the Labor Code rule.
Civil Code Art. 1708	Wages are generally exempt from execution or attachment, except for debts incurred for food, shelter, clothing, and medical attendance.	Courts will not garnish wages for ordinary consumer loans—but private salary deductions with consent remain lawful.
RA 11199 (SSS Act), RA 9679 (Pag-IBIG Fund)	Allow statutory payroll deductions for government-mandated salary loans and contributions.	These are not subject to the Labor Code’s “written authorization” requirement because “required by law” covers them.

*Older jurisprudence, pleadings, and contracts still cite the old article numbers; always double-check when drafting.

3. Is there a numerical ceiling for private-sector salary deductions?

No Philippine statute sets a fixed percentage cap for private-sector workers. The only express monetary limit is that net pay may not fall below the prevailing minimum wage after all authorized deductions (Labor Code Art. 116). Everything else—whether you keep 90 %, 80 %, or 50 % of your wage—rests on voluntary consent, credit-risk policies, and collective bargaining.

Government employees are different: DBM and GSIS rules require a ₱5,000 net-take-home-pay safeguard or keep total deductions below 40 % of gross pay. Those ceilings do not apply to private firms but are often adopted as best practice.

4. Special considerations when the employee is only a co-maker

Solidary liability first—salary deduction second. The lender must demand payment and establish default. If the principal borrower is still paying, the co-maker’s wages may not be touched.
Fresh written authorization. The co-maker must separately authorize the employer to deduct when the contingency arises (Rule VIII, §12, IRR). A generic “I agree to salary deduction” line inside the promissory note is usually insufficient.
No employer profit. The employer can pass the amount straight to the lender but cannot charge a “processing fee,” earn interest spreads, or impose penalties; otherwise it violates the “no profit” clause (Art. 116).
Observe data-privacy limits. HR must share with the lender only what is minimally necessary (loan balance, payment schedule) under the Data Privacy Act (RA 10173).
Stop-and-start rule. Once the loan is fully settled or the employee revokes consent, deductions must stop immediately; over-collections are refundable with legal interest (see Philippine Telegraph & Telephone v. NLRC, G.R. 118978, 23 May 1997).

5. Relevant jurisprudence

Case (G.R. no.)	Principle
PT&T v. NLRC (118978, 1997)	Employer may not off-set claims against wages without prior, item-specific written authorization.
Auto Bus Transport Systems v. NLRC (164787, 2006)	A CBA clause allowing blanket deductions is void if it results in wages below minimum.
Abbott Laboratories v. Alcaraz (192571, 2013)	Voluntary benefits or deductions can be withdrawn but must honor non-diminution principles if they ripen into company practice.
Citytrust Banking Corp. v. NLRC (125129, 1998)	Employer acting as collection agent remains liable for illegal deduction even if the money ultimately goes to a third-party creditor.

6. Enforcement and remedies

Money claims / Illegal deduction – File a complaint with the DOLE Regional Office (for simple wage issues) or NLRC (if employer-employee relation is disputed).
Reinstatement or backwages – When dismissal or suspension follows a deduction dispute.
Moral and exemplary damages – Awarded when the deduction is attended by bad faith or oppressive conduct.
Criminal liability – Art. 303 [288] of the Labor Code punishes willful withholding or illegal deduction of wages with a fine and/or imprisonment.

7. Best-practice checklist for employers and lenders

Separate, detailed authorization form each time a co-maker is activated.
Cap deductions voluntarily (e.g., 20–30 % of net pay) to avoid claims of unconscionability.
Maintain minimum-wage compliance every cutoff.
Give written notice to both borrower and co-maker before the first deduction.
Issue pay-slip breakdowns that clearly reflect the loan code, amount, and remaining balance (RA 10361).
Stop on full payment or revocation and refund any excess within the same pay period.

8. Comparison with garnishment in court proceedings

Court-ordered garnishment of wages (Rule 39, Rules of Court) follows the Civil Code exemption in Art. 1708—ordinary debts are largely protected. A lender therefore prefers the voluntary payroll-deduction route secured by a co-maker’s written consent; it is faster and avoids the exemption barrier.

9. Conclusion

For private-sector employees in the Philippines, there is no fixed percentage “salary-deduction limit” applicable to a loan co-maker. The decisive safeguards are:

Written, specific consent;
No reduction below the minimum wage;
Zero profit to the employer; and
Immediate cessation when the debt is extinguished or consent is withdrawn.

When these conditions are respected, a co-maker’s wages can lawfully answer for the borrower’s default—without breaching the Labor Code. Employers who ignore any of these guardrails, however, expose themselves to money-claims, damages, and—even criminal—sanctions.

Need help drafting a compliant salary-deduction authorization form or reviewing your company policy? Feel free to ask and I can prepare model language or a checklist tailored to your workplace.